The research Department of the Central Bank: Russian economy shows signs of stabilization


MOSCOW, November 12. The Russian economy is showing signs of stabilization, which is still fragile.

This is stated in the Bulletin of the Department of studies and forecasting of the Central Bank of the Russian Federation “as evidenced by trends”. The document notes that the conclusions and recommendations contained therein do not necessarily reflect the official position of Bank of Russia.

The document also notes that the renewed decline in oil prices increases the probability of risks to financial stability.

“Financial stability risks decreased in General, however recently a renewed decline in oil prices increases the probability of the emergence of new risks,” the document says.

In October 2015, the volatility in the oil market increased in comparison with September. In the beginning of the month the oil price has broken through the mark of 53 dollars per barrel on the background information about reducing oil production in the U.S., the relative stabilization of the Chinese economy and on expectations of OPEC production cuts.

The decline in GDP amounting to 4.2%

The Bulletin indicated that the decline of Russia’s GDP by the end of 2015 may reach 4.2 percent.

“Our model the GDP forecast for 2015 improved slightly to minus 4,2% (-4,3% in September), the forecast for a rolling year (the last 12 months from the date of calculation) until the first quarter of 2016 is -4,5% -4,6 when assessing percent in the previous month. We still forecast a resumption of growth in the economy before the first quarter of 2016”, – stated in the document.

The Department estimates the reduction in GDP in the third quarter at 5% yoy, and 4% (quarter to quarter), which corresponds to their expectations in September. “Current statistics indicate possible signs of recovery in the dynamics of the manufacturing industries, the sustainability of which, however, is still in question”, – the document says.

Department estimates, the relative dynamics of stocks in the first half of 2015, “may reflect wildly exaggerated expectations of economic agents about the depth of the current economic crisis”. “It is also possible that Rosstat’s exaggerating the real decline in stocks, underestimating the decline in other components of GDP (such as capital investments) or overestimating the magnitude of the decline in GDP. In any case, we can expect that in the near future dynamics of stocks will begin to have a positive impact on GDP dynamics”, – reported in Department.

The Outlook for inflation

High inflation expectations can serve as a risk factor, because of which actual inflation may exceed the official forecast of the Central Bank, said in a Bulletin.

According to the baseline forecast of the Central Bank of the Russian Federation, inflation in 2015 may reach 12-13%, 2016 – 5,5-6,5%.

“Inflationary expectations, despite the incipient stabilization of the exchange rate since mid-September, remain at a relatively high level. This, in our opinion, can serve as a risk factor for actual inflation exceeding the official forecast of the Bank of Russia, both in the short and in the medium term”, – the document says.

The lowest point of the slowdown in investment activity has not been completed

The Department also indicated that the lowest point of the slowdown in investment activity has not been completed. “We believe that the lowest point of the slowdown of investment activity currently not completed… According to our estimates, the monthly growth of investment in fixed capital (corrected for seasonality in September) was negative – a minus of 0.4% (month-on-month) that does not mean the beginning of the rise in investment activity”, – stated in the Bulletin.

Nevertheless, it is possible to speak about continuation of the begun in June slowing down the decline in economic activity in annual terms, the document says.

With regard to consumer activity, the document notes that in September continued its decline. Retail trade turnover decreased further in line with the decline in real wages, ongoing since the middle of 2014 (adjusted for moderate growth in the periods of indexing public sector wages). Consumer confidence in the third quarter also deteriorated, according to preliminary estimates of Rosstat.

“In our view, this is due to the weakening of the ruble and increase the volatility of the exchange rate dynamics due to lower oil prices in the last quarter. Stabilisation of exchange rate dynamics in September or October should have a positive impact on consumer confidence, but currently we do not see strong fundamental prerequisites for the termination of the fall in retail trade turnover”, – notes the Department.